The most prominent items of the zakat and tax dispute 2023

Policies and procedures followed by the Zakat, Tax and Customs Authority regarding the most prominent items of the zakat and tax dispute 2023 to follow up on the latest laws and legislation in the Kingdom

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Learn about the policies and procedures followed by the Authority regarding the most prominent zakat and tax dispute items

The Zakat, Tax and Customs Authority issued this booklet to clarify the zakat and tax treatments related to the application of the applicable statutory provisions.

The content of this booklet is not considered an amendment to any of the provisions of the laws and regulations in force in the Kingdom.

The first edition, April 1, 2023 AD

The most prominent items of the zakat and tax dispute 2023

First: Deducting the fixed assets registered in the name of the partner from the Zakat base

The fixed assets registered in the name of the partner and funded by the rights of the partners or the partner’s neighbors

and included in the financial statements shall be deducted from the Zakat base in a manner that does not exceed the source of its financing added to the Zakat base, in any of the following cases:

1. That there is an impediment preventing the transfer of ownership of the asset to the name of the company.
2. To be employed in the company’s activity.
3. To be an in-kind share in the capital.

Except for the above cases, assets in the name of the partner are not deducted from the pool.

Related rules and regulations:

• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Second: Subjecting estimated profits to withholding tax

Not subjecting estimated profits to withholding tax except in the following cases:

1. There is evidence that the taxpayer has paid the estimated profits to a non-resident party (head office, parent company, owner of the company), clearing or settling them with these parties.
2. The taxpayer submits his estimated tax declaration. In this case, the estimated profits are subject to tax deduction within the limits of the estimated profit percentage stated in the Law and its regulations, or contained in the taxpayer’s declaration, or that was agreed upon with the taxpayer before submitting his declaration, whichever is greater.
3. Appearance of revenues or contracts that were not declared by the taxpayer and he was estimated to be accounted for.
4. The taxpayer does not keep accounting books and records.
5. The taxpayer did not submit his tax return.
6. The taxpayer does not have bank accounts in the Kingdom.
7. The case under examination is within the cases of tax evasion or avoidance.
8. The taxpayer’s approval to subject the estimated profits by virtue of a written approval signed by him or his legal representative.

Related rules and regulations:

• Income tax system issued by Royal Decree No. (M1/) dated Muharram 15, 1425 AH, and the latest amended by Royal Decree No. (M/70) dated Dhul Qi’dah 7, 1439 AH.

Third: Salary expenses in excess of what was stated in the certificate of the General Organization for Social Insurance

Acceptance of deduction of the expense related to the difference in salaries and wages that exceeds that registered in the certificate issued by the General Organization for Social Insurance,

provided that it is supported by supporting documents, including, for example, the following:

1. Monthly salary marches.
2. Bank account statements.
3. The approved work organization regulation to verify the allowances paid to employees.
4. Certificate of the external auditor showing the amounts of wages and salaries subject to and not subject to social insurance.

Related rules and regulations:

• Income tax system issued by Royal Decree No. (M1/) dated Muharram 15, 1425 AH, and the latest amended by Royal Decree No. (M/70) dated Dhul Qi’dah 7, 1439 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Fourth: Not taking into account the taxpayer’s accounts due to the delay in issuing the financial statements

The issuance of financial statements late for their financial years is not evidence of the absence of accounting books,

and the principle is the accounting of the taxpayer based on the approved financial statements, and to deviate from this principle, there should be justifications for abandoning it.

Related rules and regulations:

• Income tax system issued by Royal Decree No. (M1/) dated Muharram 15, 1425 AH, and the latest amended by Royal Decree No. (M/70) dated Rajab 11, 1439 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Fifth: vacation allowance and travel tickets

Dealing with leave allowance and travel tickets as follows:

1. Accepting the deduction of the allowance for vacation allowance and travel tickets included in the income statement after verifying that the controls that must be available in accepting the expense are met in accordance with the relevant regulations, and if the item is classified in the financial statements as a provision, it shall be treated as a provision.
2. For the purposes of determining the Zakat base, the balance at the beginning of the period is added after deducting the user during the year to the Zakat base.

Related rules and regulations:

• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

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Sixth: Dealing with civil loans, supportive or additional financing, and the like

Debit loans, supportive or additional financing, and the like, are processed according to the following:

• With regard to the zakat assessments for the years (2018 AD) and before:

Debit loans or supportive or additional financing and the like provided to the investee companies shall be deducted from the Zakat base in an amount equal to the percentage of the taxpayer’s share

in the capital of the investee company, provided that:

1. The holding or investing company must have deducted debt loans, supportive or additional financing, and the like granted to the affiliate or investor in its zakat declaration, and the investee company must be registered with the Authority and subject to zakat, or the company is an external company and has been recommended according to the conditions for deducting investments external.
2. That the source of financing these loans has been added to the Zakat base in the holding or investing company.
3. That the debt loans, supportive or additional financing, and the like granted by the holding or investing companies to subsidiaries or the investee in them are classified as investment or long-term assets in the lists of the holding or investing companies, and they were classified in the investee company under equity or long commitment term.
4. That the balance of the debit loan in the financial statements of the holding company or the investor be matched with the balance of the credit loan in the subsidiary company or the investee company, or a confirmation of the balance is requested from the subsidiary company or the investor in it.
5. The balances should not result from commercial transactions between the holding or investing companies with the investee company.
6. It should be a good loan without returns and not for a commercial purpose or obtaining interest from the investee company.
7. Reviewing the declaration or linking of the subsidiary company or the investee company and verifying that the item has been added to the Zakat base by the declaration or linking, and that the item is not among the items objected to by the investee company – if it is not added to the Zakat base, it will not be decided.

• With regard to the zakat assessments for the years (2019 AD) and beyond:

Debit loans, supportive or additional financing, and the like provided to the investee companies are not deducted from the Zakat base based on Article Five of the Zakat Collection Regulations issued in 1440 AH,

which states that:

“The following items shall be deducted from the zakat base for the taxpayer who keeps commercial books: 4- Investments in a non-trading facility inside the Kingdom,

if the facility is registered with the Authority and is subject to zakat collection according to the regulations, …

Likewise, debit loans, supportive or additional financing, and the like granted to the investee establishment, are not considered an investment that is deducted from the zakat base…”

With the exception of debit loans, supportive or additional financing, additional capital, and the like, which are classified within the equity of the investee company,

which are added to the Zakat base without being matched by deductions from the base of the investee company, as their deduction is accepted in the investing company.

Related rules and regulations:

• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Seventh: Life insurance expense

The life insurance expense is one of the deductible expenses from the zakat and tax base, taking into account the availability of the controls for deducting the expenses stipulated in the zakat collection regulations

and the income tax system.

Related rules and regulations:

• Income tax system issued by Royal Decree No. (M1/) dated Muharram 15, 1425 AH, and the latest amended by Royal Decree No. (M/70) dated Rajab 11, 1439 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Eighth: Contracts subject to zero-rate value-added tax

Contracts concluded before May 30, 2017 are subject to zero-rate tax, provided that the following are met:

1. Contracts should not include a special clause for value-added tax.
2. That the contracts be concluded before the approval and publication of the Unified Value Added Tax Agreement for the Cooperation Council for the Arab States of the Gulf on April 12, 2017.
3. The contract has not expired or been renewed.
4. The date of supply must be before December 31, 2018.
5. The customer has the right to fully deduct the input tax in respect of the supply of goods or services or to recover the tax.
6. The customer submits a written certificate to the supplier that he can deduct the full input tax on the supply.

Related rules and regulations:

• The value-added tax system issued by Royal Decree No. (M/113) dated Dhu al-Qi`dah 2, 1438 AH.

Ninth: The requirement to submit a court ruling to settle bad debts from the tax base

The executive regulations of the income tax system did not require the taxpayer to submit a judicial ruling proving that he was unable to collect the lost amount. Rather, the judicial ruling was mentioned,

for example but not limited to,

Accordingly, whenever the taxpayer fulfills the conditions stipulated in Paragraph (3) of Article Nine of the Implementing Regulations of the Income

Tax Law and submits any convincing evidence proving that he has taken the appropriate legal measures, whatever the case,

If it proves that the debt cannot be collected, the debt will be deducted from the tax base.

Related rules and regulations:

• Income tax system issued by Royal Decree No. (M1/) dated Muharram 15, 1425 AH, and the latest amended by Royal Decree No. (M/70) dated Rajab 11, 1439 AH.

Tenth: Investing in building, owning, operating, transferring and similar contracts with the lessor

With regard to non-final assessments to which the provisions of the zakat collection regulations issued in the year (1438 AH) and before that apply,

as well as those to which the zakat collection regulations issued for the year (1440 AH) apply,

The share of the Saudi partner in the net investment in build-and-own-operate contracts and the like is deducted from the zakat base of the lessor in the non-current balance only.

In the event that the entire investment is included in the current assets in accordance with accounting standards, then the part that is not permissible to be deducted is the part that is due during the following year,

with emphasis in all cases on adding the entire source of financing this investment to the Zakat base.

Related rules and regulations:

• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Clause 11 of the dispute: assessment and re-assessment of zakat and tax after five years

• In cases of zakat assessment:

1. The Authority discovers that the taxpayer’s declaration is incorrect based on information that was available to it during the statutory period specified for the assessment,

or that the Authority could have obtained within the five-year period from the date of the deadline specified for submitting the declaration

It is not a legitimate reason to reconnect after the regular five-year deadline.

2. As for the case of zakat evasion: which is providing incorrect information or concealing it with the intention of evading paying the due zakat or not submitting the declaration on time or the approval of the taxpayer

The Authority can open the link only in accordance with paragraph (8) of Article 21 of the Zakat Collection Regulations for the year 1438 AH, or Article 23 of the Zakat Collection Regulations for the year (1440 AH).

• In cases of tax assessment:

1. The Authority has the right to make or amend the assessment within ten years only from the end of the deadline for submitting the tax return

if the taxpayer does not submit his tax return on the regular date in accordance with the provisions of paragraph (b) of Article sixty-five of the system

Or the applicability of a case of tax evasion in accordance with paragraph (b) of Article 77 of the Income Tax Law, and the Authority may not make an assessment for more than ten years,

whether in cases of tax evasion or otherwise.

2. This policy is applied without prejudice to the cases that allow the Authority to assess or re-assess Zakat after five years and stipulated in Paragraph (A8/(and)B8/) of Article 21 of the Zakat Collection Regulations for the year 1438 AH.

And Paragraph No. (2) of Article Twenty-One of the Zakat Collection Regulations for the year 1440 AH, and Article Twenty-Two of the same regulations.

Related rules and regulations:

• Income tax system issued by Royal Decree No. (M1/) dated Muharram 15, 1425 AH, and the latest amended by Royal Decree No. (M/70) dated Rajab 11, 1439 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Article Twelve: Real estate under development

• With regard to the zakat assessments to which the provisions of the zakat collection regulations issued in 1438 AH apply:

Determining the taxpayer’s intention towards real estate under development whether or not it is prepared for sale depends on the movement of the item for the subsequent year, and accordingly,

it is not acceptable to deduct the sold part of the real estate investment in the subsequent year.

Since the subsequent year is considered revealing of the intention of the taxpayer in the previous year, and accordingly the real estate under development that was sold in the following year

or that was transferred to real estate investments in circulation without development in the year before the next, is considered prepared for sale in the previous year.

If the sale is after its completion, then it is one of the trade offers and it is not acceptable to be deducted.

In the event that it is sold for an emergency circumstance or the taxpayer needs liquidity and sufficient weighted evidence is presented so that the intention does not change, it is deducted from the Zakat base.

• With regard to the zakat assessments to which the provisions of the zakat collection regulations issued in 1440 AH apply:

The value of properties under development prepared for sale, which are classified as non-current assets in the financial statements,

and which are intended to be sold after completion of their development, shall be deducted unless they are offered for sale as they are or the total sales and advance payments received from customers exceed,

Including (25%) of its apparent value in the financial statements for the Zakat year subject to approval.

Related rules and regulations:

• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

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Thirteenth: Calculating the statutory deadline for objection or grievance stipulated in the work rules of the committees for adjudicating tax violations and disputes

The statutory time limit for objecting to the Authority’s decisions, which is specified in Articles (2) and (3) of the work rules of the committees for adjudicating tax violations and disputes,

is calculated as of the day following the notification of the taxpayer of the Authority’s decision.

Related rules and regulations:

• Rules of work of committees for adjudication of tax violations and disputes.
• Implementing regulations for collecting zakat – Value Added Tax System – Income Tax System – Excise Goods System – Implementing Regulations for Real Estate Disposal Tax

Fourteenth: Investing in investment funds

Investment in non-trading funds may be deducted if any of the following controls are met:

1. The fund calculates its zakat separately and pays it to the Authority.
2. That the owner of the investment unit – in charge – submit a calculation of the zakat of his investment in the fund according to the calculation mechanism – below – and pay accordingly,

in addition to submitting the financial statements and documents related to the fund through which the validity of that calculation can be verified.

• Calculation mechanism:

The zakat of the taxpayer who owns the investment unit is calculated according to the following formula:

(The fund’s entire zakat base x the percentage of the taxpayer’s ownership in the fund x the percentage of zakat mentioned in the regulations).

The zakat base for the entire fund is calculated according to the regulations, taking into account the following:

• A: The net assets belonging to the unit holders shall be among the components of the fund’s zakat base referred to in Article 4 of the regulations, with their apparent value at the end of the fund’s fiscal year.
• B: . When deducting any of the short-term assets, its value is added from the short-term debts.
• A: The fund’s non-trading investment in investment funds shall be treated as the foreign investments mentioned in Paragraph (5) of Article Five of the Regulations.
• D: The percentage of non-trading investments for equity funds is determined as follows:

1. Monthly, the total amount of subscriptions is deducted from the total amount of purchases, and the total amount of redemptions is deducted from the total amount of sales.
2. Paragraph (1) applies to each month during the year, and the highest percentage is taken from the months of the year, and multiplied by the value of investments in stocks fixed to the balance of the end of the fiscal year in the statement of the financial position of the investment fund, and the result is classified as the percentage of trading from that bank, and its complement is treated as a retained investment For non-trading described in Article Five of the Regulations.
3. In order to implement the provisions of Paragraph (D), it is required that the main activity of the Fund be investing in listed shares.

• E: Long-term investment properties that are not intended for sale are considered fixed assets, and what is stated in Paragraph (1) of Article Five of the Regulations applies to them.
• D: The difference between the adjusted net profit (loss) and the book book net profit (loss) is added to the fund’s zakat base. It determines the adjusted net profit (loss) of the fund,

In accordance with what was stated in Articles Eight and Nine of the Regulations, taking into account that the expenses of custody, management,

control and audit fees are considered among the expenses as a deductible award for the Fund and the provisions of Paragraph (1) of Article Eight of the Regulations apply to them.

• G: When the fund chooses to display its assets and liabilities using a classification (current / non-current), and it has deducted a current asset in which the controls for deduction from the Zakat base have been achieved, then when deducting it from the base, its value must be added from the current liabilities, if any.
• H: For the purposes of this principle, the term trader means: any asset or liability that is expected to be realized, recovered or settled within a period not exceeding (365) days after the reporting period, or that the fund maintains it mainly for the purpose of trading, otherwise the item is considered non-trading or long-term.

The minimum zakat base for the taxpayer in the investment fund is his share of the adjusted net profit of that fund, whether the profit is distributed or not.

Related regulations:

• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Fifteenth: The user from the allocations is zakat

1. In cases where the zakat base is higher than the adjusted net profit, the user is deducted from the provisions from the zakat base.
2. In cases of zakat assessment in which the adjusted net profit is higher than the base, the user is deducted from the adjusted net profit as a deductible expense, provided that the net profit is compared,

After deducting the user with the pool (after canceling the user’s effect from the allocation from the pool) and taking the highest between them.

Related rules and regulations:

• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Sixteenth: calculating the adjusted profit as a minimum for the zakat base

Not considering the adjusted net profit as a minimum for the zakat base, provided that the zakat that is calculated is not less than what was stated in the zakat returns submitted by the taxpayer,

with regard to the zakat years prior to the entry into force of the executive regulations for the collection of zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.

Related rules and regulations:

• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Seventeenth: import differences

The Authority, after researching the data available to it and taking into account the data of asset additions, shall request the taxpayer to provide an explanatory

settlement of the differences resulting from the comparison of the foreign purchases included in the declaration.

Provided that the taxpayer and foreign purchases are given in the customs declaration to verify whether they are documented, sufficient time to submit the explanatory settlement,

according to the case, and in the event that this is not submitted, the Authority shall do the following:

1. Exclude the foreign purchases declared in the declarations in addition to the foreign purchases declared in the customs declaration.
2. In the event that the value of the purchases in the declaration is less than the purchases declared in the customs declaration, an estimated profit is added for the difference according to the following:

• The taxpayer and mixed companies (15%).
• The Zakat payer in full for the years 2018 AD and before is the estimated profit rate (10%), and it is calculated based on the provisions of the Zakat Regulation issued by Ministerial Resolution No. (2082) dated 1 Jumada II 1438 AH.
• The taxpayer is fully zakat for the years 2019 and beyond. The estimated profit rate is equal to the percentage of the total profit for the same year,

with a minimum of (15%), and it is calculated based on the provisions of the zakat regulation issued by Ministerial Resolution No. (2216) dated 7 Rajab 1440 AH.

Related rules and regulations:

• Income tax system issued by Royal Decree No. (M1/) dated Muharram 15, 1425 AH, and the latest amended by Royal Decree No. (M/70) dated Rajab 11, 1439 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Eighteenth: Dividends from the profit of the year

In the event that the Zakat base is not the minimum – the adjusted net profit – dividends will be deducted from it even if it exceeds the balance of the retained earnings at the beginning of the period,

when it is proven that the money has left the taxpayer and the taxpayer provides proof of the disbursement of these distributions,

taking into account that these profits are not deducted from the Zakat base of the taxpayer who received these distributions.

Related rules and regulations:

• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2082) dated 1438 AH.
• The executive regulations for collecting zakat issued by Ministerial Resolution No. (2216) dated 1440 AH.

Nineteenth: deducting food purchases incurred outside the urban range

Accepting the deduction of the input tax incurred on the expenses of catering services for workers in companies and projects located outside the urban area if the taxpayer proves that he is bound by it under a law in force in the Kingdom,

provided that such expenses are incurred in the course of carrying out the taxable economic activity.

Related rules and regulations:

• The value-added tax system issued by Royal Decree No. (M/113) dated Dhu al-Qi`dah 2, 1438 AH.

Controversy Clause No. Twenty: Achieving the concept of independence of pension funds or insurances and the like

The concept of the fund’s independence must be separated from its management company or its owner. When auditing,

the controls mentioned in the text of the article must be adhered to. It does not extend to examining the extent to which any of the owner, its management or others influence the fund’s decisions or policies, because the intent of the article in the regulations is:

1. Verifying that the amounts transferred to the funds have been released from the taxpayer’s accounts.
2. And it’s an actual expense.
3. And it does not belong to the taxpayer.
4. or to have any authority to use it.
5. Or take advantage of its revenues and add them to his funds

With regard to the share of the partner or contributor in retirement funds, its acceptance is linked to the wages and salaries approved by the Authority for them.

Related rules and regulations:

• Paragraph 8 of Article 9 of the executive regulations of the income tax system.

This guide has been prepared for awareness and education purposes only, and its content is subject to modification at any time, and it is not considered in any way binding on the Zakat,

Tax and Customs Authority and is not considered in any way as legal advice.

It cannot be relied upon as a legal reference in itself, and it is always necessary to refer to the texts of the laws contained in the applicable regulations in this regard.

Every person subject to the laws of zakat, taxes and customs must verify his duties and legal obligations, and he alone is responsible for discipline and compliance with these laws and instructions.

The Zakat, Tax and Customs Authority will not be responsible in any way for any damage or loss suffered by the taxpayer resulting from his failure to comply with the instructions and laws in force.

Disclaimer: These policies and procedures apply to cases for which no final decision has been issued.

We have come to the end of our article on the policies and procedures followed by the Zakat, Tax and Customs Authority regarding the most prominent items of the zakat and tax dispute 2023,

in which we mentioned a detailed explanation of the items of the dispute

Our team at CFOONLINE, the accredited financial office in Saudi Arabia, clarified the most important points in a short and beautiful manner to facilitate understanding of the laws and legislation issued.

And for any question we are ready to answer and serve our customers 24 hours a day.

The most important sources:

zatca.gov.sa